Wednesday, March 23, 2016

The voice of doom -- the bust that never happens

Reading the financial press over the past few months the overall view is that the markets are overstretched, ready for an implosion.  Yet over the past 12 months the S&P is largely unchanged -- from 2060 to 2040 -- in 12 months, in the US at least unemployment, at 5.1% is at a historical low -- labour participation is not rising, leading analyst to assume that the reduction in the American labour force is a systemic and not economic events (the percentage of the population that is over 55 is growing -- that impacts participation rates).

The US dollar is more or less unchanged, interest rates are still hovering in the low single digits -- despite the US Feds desire to tighten the screw -- in a sense, an that's probably where the unease arises, there is a sentiment that the economy has not really recovered from the 2008 crisis.  

Of course that's America's story -- Canada story is different, but then as soon as the commodity complex improves, Canada's fortune will improve (although the recent $20 billion federal government deficit would suggest that the road ahead is long and difficult).  The fundamentals elswehere are equally interesting.  Europe seem to be in standby mode -- Dragi's unable to find new ways to stimulate the European economies.  

A few weeks ago a French friend was discussing the state of the CAC40 (equivalent to DJ Industrial) where nearly 85% of the ownership of French listed companies was in the hands of foreign capital -- the French government was not very happy with the situation...however, over the past 4 years has gone out of its way to increase taxes (of all kinds).  My friend a banker earns a very very attractive salary package, yet has seen its taxes nearly double over the past 4 years.  His take home pay has nearly halfed over that time; not entirely surprising his "disposable income for investment" has shrunk somewhat.  Lets be clear, he's very well paid, he's seen some nice bonus' over the past few years -- granted a lot is differed but he's actually cut back on expenses.  But he's got no real money for investing, and what he does he's certainly not putting at work in France! So the explanation of the foreign ownership of the CAC40 is simple to explain.  

I still think that the overall growth of western economies is also largely tempered by the demographic shift.  I've been told otherwise, that the stats don't support such conclusions but it remains that shrinking wages (median) and "hidden inflation" reduce purchasing power cannot explain the general economic weakness.  Even America's vaunted  strength is really hiding weakness; corporate core earnings have been static for some time now, the growth in "other income" and accounting games has been the main source of growth.

Anyway, this ranting is just to show that things are no so much difficult as strange!  The old joke that if government just got out of the way things would be better -- it would seem that American's drinking water problem is showing this to be a falsehood.   America -- visit but don't drink the water. BTW, and this must be pissing off the conservatives something bad, Congress (Republican) pushed legislation removing the EPA's right to inspect water quality -- because the States were better equipped to do the job.  Imagine how pissed the GOP was when the summoned the EPA after the Flint water debacle -- so that they could gloat at the EPA's incompetence, when the EPA politely pointed out that for the past 4 years they have zero right to supervise the water quality in the US, as such they have no idea what happened in Flint....  



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